good morning. north accuracy conducts its third nuclear test. the united states and japan expressing outrage. meantime, china is calling for calm. the state of the union, president obama set to deliver

an address to congress tonight. and stocks getting a slow start to the week. the s&p falling for a fifth straight monday. today is tuesday, anyway, february 12th, 2013. and "squawk box" begins right now. asian markets shrugging off the tests in north korea. but markets in china, taiwan remain closed. north korea says a miniaturize ed nuclear missile was tested.

the u.s. ambassador to south korea responding to all of this. >> it's a very provocative act that undermines regional peace and stability and i think it would be critical for us to coordinate very closely with you and our colleagues in south korea going forward. >> we're going to talk more about washington's reaction and what this all means for geouncertainty and our guest hosts for this hour, jared bernstein who works as the chief economist for joe biden. tony is joining us and capital alpha markets managing director chuck gabriel. they're also going to talk state of the union. john harwood sat down with dave

axlerod yesterday. he will join us. later we're going to be joined by valley jarrett, denny hoyer and jeb hensarling. and our corporate newsmaker of the morning, mutar kent, the coca-cola chairman and ceo set to talk earnings and outlook, that's all coming at 8:00 a.m. eastern. but first, michelle has this morning's headlines. michelle. >> yeah. the national transportation safety board investigating whether tiny fibers inside the lithium ion batteries could have played a role in battery failures on boeing dreamliners. the tiny formations are known as dendrites. battery experts say they can cause short circuits. banquet's hosty brands has

received the go ahead to continue with bankruptcy for some of its brands. moody's says down side risks have proceeded in the last few months. the ratings agency expects real growth of the g-20 of around 2.9% this year followed by 3.3% in 2014. joe. >> michelle, let's get back to today's main political event, the state of the union. cnbc's washington corespondent john harwood joins us from chicago. i know, you have david axelrod. well, we have valley jarreerie . so there. what did you find out, john? it will be interesting tonight. i know you'll be watching. >> i sat down with david. he's never going to leave barack obama very far. we talked to him about the state of the union, about its impact

on some of the fights like the budget sequester. he said he's not sure that the sequester is going to happen or not, whether they're going to make a deal, but this is the single biggest opportunity he's got to make his case on why we need revenues as well as spending cuts. here is david axelrod on the significance of the state of the union to that effort. >> we have a standoff on these issues. this is the largest audience he's going to have. the goal is to move public opinion because that's what moves congress. i think some of the reasons we now see some moment on issues like immigration reform, for example, has to do less with what the president said and more with what the american people have said. >> i also talked to david about the attitude the president has shown since the election. he certainly had a little bit more spring in his step. some people say he's been cocky

since that election, throwing a couple of elbows at republicans in the inaugural address. david said the demands of the job don't let you get too cocky, but he didn't deny the president is certainly feeling its oats since winning a second term. >> i don't think that the array of challenges that he wakes up to every day allows for cockiness, but certainly there's a confidence that comes with affirmation of the american people. but i also think that a wise president doesn't overreact to that. he understands these are tough politics and the politics are still difficult. it's a determination to try and push that that and get things done. >> finally, i talked to david about some comments i got from a top wall street executive who said david was responsible for some of what he called the

demonization of wall street figures by the administration after they took over. david said, well, maybe a word or two went in the wrong direction or maybe we stepped slightly over the line at times. but fundamentally, the problem was irritability on wall street not with the strategic decisions at the white house. >> i don't think i was responsible for that. what was responsible for that was irresponsible behavior. i don't think anybody was, you know, as a strategy dem demonizing the business community. we were too busy trying to save the country from the impacts of some irresponsible decisions and a handful of people on wall street made. >> so, joe, we've set the table for tonight's speech and the president is going to try, as you've seen, to focus on the economy, the middle class and some spending priorities in addition to fiscal austerity,

joe. >> right. we're going to be investigating a lot of what we hear. we've got guys this morning, steny on later. we have jared bernstein grabbing my script. do you just want to see what you're saying? >> yes. he's not saying anything that was written there. yeah. he never does. >> joe, axelrod didn't drop a dime on jarrett, but it's possible that jarrett was the one demonizing wall street. >> i find that hard to believe. >> whenever he comes on, he does. >> you know what? i was -- and we have to go and keep it business oriented, but i just wonder if chuck todd is really yanking your chain a lot about -- because they're much better than duke this year, miami. >> they were in one game.

but -- >> who is voting duke income one still? who are those people? >> fortunately, joe -- >> have they been on vacation for the last month spp. >> fortunately basketball seasons are longer than one game and we're going to have another shot at miami. i believe they're going to come into cameron indoor stadium and we'll see whether they beat us by 30 points. if they beat us by 30 points in cam dem indoor stadium, i'm bowing doing. >> indiana, it's going to be great. but i digress. john, thank you. and nice work. you've got connections, but we have valley jarrett. i don't know what i'm talking about. see you later, john. thank you. >> okay. >> let's get a check on the markets this morning. the price of oil this morning, flat. wti, $97 a barrel.

see if we see any reaction of what are the reports of a nuclear explosion in north korea. we get the yield at 1.96%. so, no, not much. as for the dollar, we've seen a recovery in the yen. 94.25. 1.34 for the euro, the pound at 1.26. and the price of the yield this morning, 1632. kelly evans is standing by in london. >> michelle, thanks. i wanted to turn your attention to right here barclay's up 4% today. this after the bank delivered its long awaited turn around plan. investors thought the plan was somewhat less aggressive when it came to restructuring the business than it might have expected. just swinging around, it's otherwise a generally quiet session. advancers outpacing decliners by about a three to two ratio. overnight, china is still closed. we closed all week to celebrate the lunar new year. but, again, let's take a look at

what's been happening with shares of barclay's. so the investors saw a knee jerk reaction up 4% after the bank delivered 2012 earnings. came out and talked about his restructuring plan. the way it de-emphasized the investment bank under the new ceo anthony jenkins who came in in the middle of last year after the libor, after a series of the bank. analysts do have a series of concerns about the bank. its r. o.e. last year was up. >> i think the analysts haven't had a chance to digest what we're launching today because we haven't done the mess tagsz. so what we are is asking

everyone to work, we have to extra teej cannilily or cost base to our net income. that is what we're talking about today. it's a confident plan. i'm confident as the investors digest it, they will appreciate it the. >> as ross pointed out, he nicely matched his tie there with barclay's blue. g-7 is out saying it wants to see market oriented exchange rates amid all the rhetoric about currency wars. that may sound type. the real point is that they're not coming out to more harsh talk about what japan is trying to do to weaken the yen and immediately we saw this knee jerk reaction with the yen going up towards the 95 level and now it's pulling back a little bit. the swiss franc has been weakening after those comments and after the s&b thomas jordan came out and said he thinks the franc are overvalued, but they're going to maintain the

170. effectively, no one saw that statement as meig it's a no go when it comes to using currently as a policy tool. >> pay by tweet, that is the question. why american express buying a new xbox or even a gift card will soon be as simple as a hashtag. but first, it's fat tuesday. today's festivities kick off with the zulu parade. but, of course, it is mardi gras around this table all the time. streaming charts! they're totally customizable and they let you visualize what might happen next. that's genius! we knew you needed a platform that could really help you elevate your trading. so we built it. chances of making this? it's a lot easier to find out if a trade is potentially profitable. just use our trade & probability calculator and there it is.

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. welcome back. u.s. equity futures at this hour suggesting a flat open. the dow would open higher by 9 points. making headlines, twitter and american express are teaming up to introduce a pay by tweet service. joe can't believe that. he can't wait. >> i have no idea what you're talking about. >> i know. am ex card holders who link their card to their twitter account will be able to purchase products directly from within the social network. it can happen. here is an example of how it will work. say you want to buy ads 25 american express gift card. you'll be able to buy it for a discount today by tweeting #buyamexgiftcard25. really long. american express will ask you to

confirm your request in a tweet. all products will be shipped with free two-day shipping. >> it's basically a promotion to get people to tweet more about american express and these products, right? and then they give you a discount for effectively advertising. >> what is a hashtag -- what does it do? it's a number, isn't it? >> so i can go on to tweet deck and do a search for that hashtag. >> i don't know what a tweet deck is. >> they collect tweets. >> jarrett and i have no idea. >> so if i hashtag westminster, every westminster tweet will come up the. >> i'm really not that interested. >> i know. >> can you do it on a blackberry? >> today is the day i switch. >> i'm powering it down right now. >>. >> those people deserve it, those crack berry people.

>> torsten hines is not crackberry. >> yeah, but he's -- you know where he broadcasts from? waterloo. what does that say to you? didn't something bad happen at waterloo? >> really bad. >> jared bernstein, chuck gabriel and brian bradsateen, let's talk. i want to go to washington first and understand your perspective on it. jared, now what do you hope we see? what do you think we see? >> i think we see a follow on to the kind of inauguration address where the president talked about the role of government in society. tonight, i think he's going to talk about pretty robust role of government in the economy and he's going to focus on mice. not the rodent. it's an acronym for manufacturing, infrastructure, clean energy and education. those are the four topics i think you're going to hear.

>> there are republicans around the country rolling your eyes as you're saying this. >> yes. i understand that. i think part of the president's job tonight is to explain how he's going to bring republicans along, but remember, he's talking over the republicans to the american people -- >> what happened to the middle? >> let me just say, the complaint -- i think the complaint against the president and the congress in general has not that they're not talking to what americans care most about right now which is the economy ask jobs. and that's true. the budget deficit -- >> he was talking about 18 and 19. >> i'm just saying that -- >> global warming and what was the other thing? >> there's immigration, there's guns. >> like 18, 19 and 20. >> exactly. you're going to hear a little bit about those. but it is time. i believe the white house believes it's time to talk over washington and to the american people about the economy and jobs. and i think that's right. >> i'm going to ask valley this. we've heard about we want to help the middle class, we do. and we want to do education.

we want everyone to have equal opportunity the.and maybe even, tony, infrastructure with a public/private partnership. but why not throw a bone to the private sector? we know the government can do a few things to help job creation, but it's a private sector thing. why not throw a bone on corporate tax performance for the private sector? why not say, look, i'm going to look at a lot of these regulations. >> with growth in mind. >> and i'm going to thif about growth when we can't about anything. >> i don't think it's a good ideas. i think you mentioned a couple of areas, and i'll bet tony would agree, that when you talk about education and infrastructure, historically republicans have gotten behind it because those are important. >> you used the phrase my way or the highway and there's a sense right now in washington that the administration has moved to the my way or the highway. >> that really is where they're going to be. i think it's going to be a lot of line drawing in this speech. we've seen some of that messaging come this week where we say, you know, we can do entitlements. it's not going to be on the

backs of seniors, not going to be on the backs of a lot of potentially affected communities where you say -- >> it's. >> that's right. >> is he going to -- i think the market would like to see some signs that he ain't just talking beyond or over congress. he's a terrific campaigner when it comes to governing. he does do a my way or on if highway. i love dan henninger's analysis last week suggesting that the president is a little like the mad max and the thunder dome. two men enter, one man leaves. he needs to become a more -- a little bit more cooperative. >> i think this is all a tricky thing. certainly the president in the earlier state of the union addresses didn't reach out to congress, said i'm going to work with you, and i think the sense very strongly and correctly is they really blast him away. so it's not exactly like the president is out there, is the only person in washington who is not cooperating. >> despite the past couple of

lousy days, there has been a sort of strange -- at least to me honeymoon period that we've been experiencing where everybody thinks politics don't matter any more, the world moved on. is this going to put politics into center stage? and is that going to be bad or the market? >> i don't believe so. i think there's enough of an underpinning for this market that they have a high threshold. >> so people will look past whatever threshold? >> it would be if we internet march 1 and we start the sequester and we go to the end of the month and have a continuing resolution expires -- >> would sequester be that bad, $85 billion in spending this year? >> not at all. the only thing that would spook them, michelle, would be the debt ceiling. and the issue is whether a couple of months of sequester and maybe vary short government shutdown isn't enough to prompt the two sides to speak, all

while we're doing price discovery and budget resolutions, we're finally getting one from the senate. >> should we hope for one at this point? >> i had someone yesterday use the word lame duck already. there's not going to be me deal with congress. congress is not going to be very amenable to talking or at least the house and the president doesn't really seem very amenable to talk to him. so he's going to do everything through executive order so there will be no corporate tax reform, there will be no big dooelg deal on entitlements. those moments have passed and that was last year or the year before. never mind. >> when they did the deal of raising taxes on 400,000, you have to blow up a lot of opportunities to get things done. it will be difficult od tax reform, oregon individual. a lot of us would like to say corporate tax reform.

>> everybody says they want to it, but when you start trying to do the math and trying to find out -- if you're going to do tax reform, we need to have a collection of winners, right? you need to have some winners. >> you're always going to have losers. how about winners in this? in fact, we try to put the pieces together and is try to do tax reform and entitlement reform. tell me who the winners are to get this done. >> one thing. i find it hard to believe, chuck, that the market would just shake off the sequester. if you believe that the sequester actually shaves half a point off gdp growth this year if it sticks. i mean, that's not huge, but it's not nothing. and it's the different between growing below trend and growing at trend. it's the different between the unemployment rate staying where it is or maybe coming down a tick or two. i have a hard time believing the market would shake that off. >> we don't have a monetary cliff here and i don't think this is a cliff with regards to the beginning of the sequester. if we have an extended

sequester, i think slowly but surely the coffee smelling will set in. >> i think think of thinks that the president -- once again, i'm back at the private sector. >> do you see the private sector hiring? there's a reason that this isn't happening. it's a tragedy from future generations that the guys coming out of college can't get a job. >> the president could do things to add to gdp. >> he could do things that add points to gdp. >> was going to add to gdp is m.i.c.e., infrastructure, education. when the output is 5% gdp and

the private sector is not yet back ticking along, there is room for temporary -- >> now we're back to the chicken and eggs thing. i would say it's all about growth for me. >> it is so hard to do that. >> the first time around -- i just heard david axelrod saying they were so busy saving the world they were -- they were doing obama care in the first year. >> joe, how much more -- in his first term in office, he achieved huge things. how much more do you want him to do after that? >> the economy was floundering at 9% when the president took office. a couple of quarters later it was growing and it's been growing ever since. please do not try to -- >> and he's happy with anemic 2% growth? >> no. >> he's ready for his legacy of -- >> that is the opponent of tonight's speech so express to the american people that i'm not happy with -- >> spending money on infrastructure projects that don't ever actually happen because they get --

>> in a 48-month term -- >> this is very cynical. you think our public infrastructure is healthy? >> no. and who is to blame for that even though we have spent billions and billions of -- >> we have spent billions and billions on infrastructure as a government and what does it get us? >> no, our spending on infrastructure as a share of gdp is down from its historic level. and if you look around, you could see that. >> and if it was divulged to the states where they could make better decisions, it would be spent in a much better way. >> 48 months to get it back to where -- he didn't inherit it this time. he inherited himself. >> we have to take a break. >> it's not that much money, either the. >> but, again, it's not about -- >> oh, coming up, a public fight. another one? between billionaires. tesla's ceo and the "new york

times" plus david einhorn could get his day in court sooner than first thought. a judge is speeding up a lawsuit filed by the hedge fund manager against apple. those details when "squawk box" returns. first, attention fans of makers mark. the producer of the bourbon is cutting the amount of alcohol -- >> with water. >> in each bottle. the goal is to stretch every drop of the famous kentucky whiskey. that's because the brand has been unable to keep up with demand so the bourbon mashg is lowering the alcohol volume from 25% to 42%. i hate change. it will be 90 proof instead of 84. we all know people drink alcohol just for the taste. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe?

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good morning. i'm joe kernen along with andrew ross sorkin and michelle ka rue sa cabrera. becky will be back tomorrow. i created a monitor. everything is country now. tony, the one time you wrote in, i was playing a psychedelic spurs and you liked it. >> i know. they were good, but i missed -- >> psyche furs. oh. >> you're rolling your eyes with the country. >> yeah. i'm just not feeling pit. >> i'll give you some names. >> you don't like brad paisley? he's awesome. >> i don't even know who you're

talking about. kim jong iii, i call him -- it's kim jong il. it wasn't really a two, right? he was the son of great of god or whatever. this is the third guy, the percentagy little guy. north korea says a miniaturized nuclear device was detonated in the north sea. >> what does that mean? does that mean they were targeting doll houses or what? >> if you figure out how to do it, it's bad. >> team america. >> no, you're right. >> does that have mr. t in it? >> no. >> north korea state run media suggests it was targeted at what it calls outrageous u.s. hostility that undermines north korea's human rights.

it has always helped north korea to have someone to rally the troops behind them because a lot of the times their people don't have food or rice to eat. you can look at it on a satellite map. basically, that section of the country is dark most of the time. i guess on google, you can find some most maps and there are a few of them. u.s. equity futures up about ten points or so. >> a fight sxloes exploding between a well known auto executive and a major newspaper. tesla's ceo defending the country's model select car. the sedan ran out of juice sooner than prommed on a chilly test drive. >> we explicitly said that to do this trip, he needs to make sure he's fully charged when he starts out, that he doesn't take

detours and that he drives at a reasonable speed. i'm not talking about some ridiculously low speed. i'm talking about at least not too far above the speed limit .up in of those three things were done. if you had a gasoline car, if you only filled the tank up part way and instead of driving to your destination you me aanders through downtown manhattan and is raced to where you were originally supposed to go and you ran out of gas, we would just think you were a fool. >> in a statement, the "new york times" is standing behind the report. saying anything suggestion that the account was fake is, of course, flatly untrue. >> i know john broader. the guy who drove is car is a trustworthy guy. but ims know elan musk.

he's also a trustworthy guy. in other news this morning, a judge is approving the request to speed up einhorn's lawsuit. einhorn made his argument about all this on squawk on friday. >> we think if they distributed preferred stock with, say, a 4% yield, there would be enormous demand. shareholders that want that stable income could keep and it shareholders that want to own apple for the up side within the operations would continue to simply tone common and they would be able to take a lot of money off the table by selling the preferred to the institutions that want it. >> apple wanted the court date moved up because it argued that the issue would have a big impact on the shareholder meeting coming up on the 22nd.

>>. >> you have to say things have quieted down a little, kevin ferry. in anticipation of what? >> yeah. nervous quiet, though. we're all currency traders now. so what was kind of a sleepy move in the treasury market has now slipped into the equity market. the lowest volume and the tightest range in months yesterday. so i just don't think it's going to last for long. right now, all the volatility is in the currencies. last night, the yen got flash crashy. >> what happened last night to the yen that raised your eyebrows? >> in the period after the interest rate market had closed and indicate to the section in

italy. so the slightest amount of selling, the market wasn't resilient to it at all. it took an odd time for the market to move with that dramatically. >> there were comments from the undersecretary who said she was comfortable with wa japan was trying to do to get rid of deflati deflation, which would imply ma they're comfortable with what the yen is doing. >> there's always a comment or something. i guess what i saw was that the comment of that given what the market had done, you know, it just showed that the currency markets are the last of being able to move the market around and weigh in where central banks have created, you know, an inability to move for interest rate markets to move or participants to weigh in on the commentary. so i just think t going to come to a head to have a very light volume day. we actually saw it hit the up side objective for us. we're start to go short a little bit. i think you can't change how

things are scored. that dramatically. i.e., durntsy markets and not expect it to eventually move into the bond markets and the equity markets. >> and a lot of people watch junk and sometimes before the stock market realizes there's a weak ps, sometimes you see it in the high yields market. it's down lately. it's been on a great run. it's on a support level right now. is it telling us anything or is it the normal ebb and flow? >> this is what we watch. it's the spread to anything, right? we talk about treasuries. the level of rates is not really important right now. it's the shape of the curve and the movement of these. and so i think that that has been a rather dramatic divergence, that the equity market so far has shook off so people think, oh, well, they're moving out of the bonds and into the equities. but the fact of the matter is, you're going to need to support both the markets going forward. so that's why we think, you

know, some type of corrective move is coming. but clearly the idea that people want out of bonds started in the high yield sector earlier in the year. and where they went to is -- >> that's interesting. at least you're getting a yield there. i can see something at under 2%. if you're getting five or six, that says to me that you're worried about credit risk with the issuers, not that you don't want the 5% or 6% yield. if i was sure i'd get a 5% or 6% yield, i'd say in. >> that's right. so you have tight spreads and low yields. and those things have tended, no matter what central banks do, to suppress them and compress them. when they start to move is when things start to bang into each other. so that's why i think the focus is. certainly those spreads are something we keep an eye on. >> so the market was down last week. volume is starting to dry up a

little. i don't know. it's come a long way. hopefully -- we'll see. and we've got this great political back drop with everything. kevin ferry, thanks. appreciate it. >> great to see you. >> tieless today, but it's a good look. >> you should try that. >> andrew. >> tieless, yes. >> that would be -- >> what i'd really like would be shirtless. >> oh, i would not. >> how about just a bow tie? >> no. >> auto chip n dales look. >> i was thinking crossfire. coming up, celebrations are in full swing for the chinese new year. now the holiday is turning out to be a big economic boom for the united states. we're going to explain why the year of the snake matters next. then at the top of the hour, former procter & gamble boss a.j. laughly has been there and done that. now he's joining us with his lessons from the corner office. [ male announcer ] this is not my home.

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the chinese new year began this weekend. krndz's eunice eun has more from beijing. >> for the chinese, lunar new year is like christmas, thanksgiving and new year's all rolled into one. hundreds of millions of chinese get to planes and trains to see their families. it's as if the entire population of america is on the move all at once. most people go home, but with more chinese getting richer, more people head overseas. last year, out of all countries, america was the hottest destination to visit. l.a. and new york were tourist favorites.

for this year, the snake, both of those cities, plus san francisco are the most popular. chinese travelers are going for the shopping. luxury goods and gadgets are for the price. they're going to the bragging rights so they can tell their friends that they've seen hollywood or been to the exotic hollywood. back to you. >> thank you, eunice. this is a chart of the chinese tourism over the last ten years to the united states. it is up 600% since 2013. there are now 1 million visitors to the u.s. the department of commerce expects us to hit 4 million by 2017. one of the big areas of growing is chinese students flying to the united states to see their famous university. these tours are arranged for the thousands of students every year. >> chinese people attach great

importance to education and they are very willing to spend money on it. >> it's so cool. if i can be that student of howard university. >> i would like to attend harvard, but i have no idea whether i have the ability to come here because it's a really great school. >> we have to recognize american higher education is the best in the world and that is basically why we come here. >> boston has been press frustrated because they find chinese tourists come for literally one day, to visit harvard and m.i.t. and them they leave. >> hold on, hold on, hold on. how much do they spend when they get here? >> like crazy prp from the data that i've seen, they spend wore than any other nationality that comes to the united states. >> what are we talking about? >> the number of british people

who went to boston, 180,000. the number of chinese people who visited boston in 2011 was only 130,000, less than half. they stayed less than three nights. they collect offively spent $300 million. >> more expensive hotels? >> no. they're buying stuff like crazy. >> the british are cheap. >> no, i'm told the guy in charge of the convention bureau in boston say chinese like to stay in three star hotels and they spend a lot of money on purses, luxury products, things like that. >> when i was at the treasury department, they would buy dollar bills that had lots of number eights on them, eight being the lucky number for chinese new years. so we would literally sell these to the chinese during new year's, dollar bills. they would buy them in sheets with flot flocks of eights on

them. >> so we're going to have jane live from las vegas later on and a lot more on fifth avenue. >> thank you for that. in the meantime, coming up, the oecd -- not ocd, but the oecd launch ago plan to close international loopholes. then later this morning on squawk we have a huge lineup. former p&g boss. out to financial services chairman jeff henserley. it's a big show ahead. stick with us. i'm glad we got cdw and cisco to design our data center. yeah, the cisco ucsc series server, with the intel xeon processors, help us scale smoothly, like a perfect golf swing. how was it before? clunky and full of unnecessary impediments. like charles' swing. i heard that.

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siemens. answers.

welcome back to cnbc. we're chatting about the president's state of the union tonight. so, we'd like to see, 3%, 4% growth per year instead of this anemic 2% growth. >> we all would. >> that's one thing -- >> we all agree. >> i think -- >> although i will show -- >> i was recently out in oregon and i was giving talks and i talked about exactly this. >> how to create it. >> we need more growth, 3% to 4% growth and people in that audience were like, whoa, wait a second. i'm not sure we need all that growth. they're thinking of sustainability -- >> there are -- >> really, there are people that that would -- >> prefer more people to remain in poverty because they -- >> how do you -- >> that's --

>> without assistance from the government through infrastructure and everything else? >> there's this one area which i think has been largely neglected by the administration, especially heading into the re-election, you know, they completed the bush free trade agreements. we really expect the president to talk about trade tonight in a very positive way. >> what do you think he could do -- >> the u.s./eu free trade agreement. >> i disagree with that. >> they have big deficiencies, and actually a bulwark on standard setting -- >> you disagree with the idea of trade -- >> no i definitely think trade boosts growth and want to see more net exports. what i have never seen is a connection between free trade agreements and an increase in our gdp or even our positive trade balance. more often than not -- >> when you look at nafta, haven't they finally concluded that there were more jobs created here because we were

selling more? >> no, in fact, nafta is a -- nafta is a good example -- >> trade balance with mexico went negative. i'm saying after nafta our trade deficit with mexico went from positive to negative. >> nothing happens in a vacuum. >> it's a -- >> but -- >> current -- >> intellectually -- >> don't you know that free trade -- >> absolutely. i'm all for free trade. the nafta we were just talking about, it was 1200 pages. it actually doesn't take that long to write a free trade agreement. the nafta and many others -- >> that was shorter than the health care reform bill? >> you know, in other words my point is that a lot of these are agreements about intellectual property and investor rights on both sides. if you want more trade, we actually have to pay attention to currency. i think the federal reserve is doing a good job in this regard. i think the white house does a good job. >> there's so much -- this is what i was -- when they were

talking about currency in the earlier segment, there's way too much attention to currency, it really is the tail wagging the dog for a lot of people. i think that's where we are here. you look at correlations between currency trade, changes, and trade, and it's not that close. it's not that significant. there are so many -- >> just -- >> it does hit companies' bottom line. moving -- >> smart companies know how to hedge. >> we all agree on trade. >> we do trade. >> some form of tax reform? >> tax reform isn't going to help you that much on growth. >> really? >> i don't think tax reform -- >> how many ceos come around this table and say if we could just get a grand bargain. >> in many cases their motivation is they want to pay less taxes. >> no, no, no oftentimes we've had this conversation their effective tax -- we get a real deal the effective tax rate on many of these companies is ultimately going to go up, not

down. >> this is the idea that you lower their marginal tax rate even if you broaden the base of their effective tax rate is higher they'll do more business. and again, you know, the literature -- >> you're not buying it? >> the literature is quite clear -- >> any of the -- >> i do i'm saying when you tweak the tax code a little bit you don't get much of a bang on the growth side. the congressional research service just had a very highly regarded piece on exactly this point. you just don't see the kind of relationship -- >> what about every regulation, and you know that there has been an explosion, every regulation has to be viewed, it has to -- someone that looks at it and says how will this affect growth? and it has to pass muster and it can't -- >> they do some of this, with, you know, if it's going to have a bigger impact -- >> regulation -- >> 100 million -- >> again i think a tiny, tiny little margin. i don't know why you took andrew why you took governments off the table. i mean for example investment in productive infrastructure,

investment in education, in the quality of our workforce -- >> solar power. >> -- off the table. >> we've got to change that. >> investment in productive people would be a really good thing. >> i agree. >> if we could get like more than, you know, 45% or 50%. >> we've got to go. a.g. lampley probably knows how to grow a corporation, and he's going to come up, and i'm sorry you guys won't be here because you've got a lot to learn. >> i'll watch. what if you didn't know that weeping willows have invasive roots? what if you didn't know that a trampoline... could affect your liability? and what if you didn't know that most cars... get broken into when the weather warms up? here, buddy. the more you know, the better you can plan for what's ahead. get smarter about your insurance. ♪ we are farmers bum - pa -dum, bum - bum - bum - bum ♪ executor of efficiency. you can spot an amateur from a mile away...

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the rally on hold. could stocks take off, or are we headed for a correction? we're going behind the numbers and get latest read on small business sentiment, minutes from now. >> the president takes center stage. >> mr. speaker!

the president of the united states. >> white house adviser valerie jarrett is here with a preview of the administration's agenda. >> plus financial services, chairman texas congressman jeb hensarling joins us and dow component coke reporting at 7:30 a.m. eastern. the second hour of "squawk box" begins right now. >> good morning and welcome to "squawk box" on cnbc. i'm michelle consideschelle car. the dow sitting below the 14,000 level as investors decide whether the markets will push higher or whether a correction is on the way. a name to watch this morning is coca-cola. the company reporting quarterly numbers in just about 30 minutes. analysts expecting the dow component to earn 44 cents a share. we will have the numbers when they hit and coke ceo muhtar kent joins us at 8:00 a.m. and we are previewing tonight's state of the union address all

morning long. we will hear from white house adviser valerie jarrett in just a few moments. >> okay. thank you michelle. quick look at the futures, see how things are setting up this morning as we look over on the screen there. we do have mixed picture. dow looks like it will be up four points, nasdaq down four points. north korea drawing the threat of new sanctions after conducting the third nuclear test overnight. president obama calls the test a highly provocative act. u.n. security council is going to meet today to discuss possible responses. we'll have more on this story in just a few minutes. also a disabled corn val cruise ship is headed for mobile, alabama, with the help of a tugboat. the ship is due to arrive there on thursday. it had been scheduled to return to galveston, texas, yesterday but its trip was disrupted by an engine room fire, which knocked out the ship's propulsion system. and homeowners are doing a better job -- i'm sorry i'm

laughing. keeping up with their mortgage payments. credit reporting agency transunion says about 5.2% of mortgage holders were two months or more behind their payments during the fourth quarter. that's a four-year low, down from 6% a year earlier. i know joe was laughing like crazy. i assume. maybe not. but i could just -- i was channeling and i knew it the second i said it. >> just call it a day. >> you're -- >> institutional knowledge about alabama is -- you called it mobile, and i'm okay with that. i don't expect you -- >> you know you don't drive, either, so those gas stations those mobile gas stations that you've seen, right? >> yeah. >> steve drives. >> have you been to alabama? >> no comment. >> all right. >> have you been to alabama? >> i have. >> our next guest is one of the most highly regarded ceos of his time. today he's sharing his secrets to success in a new book, a.j. lafley, chormer chairman and ceo

of procter & gamble joins us now. he's the author of "playing to win." number one i'm from cincinnati, but number two, being in this business for 20 years or say i remember a.g., p&g had lost its way briefly. i won't mention any names. i used to call him -- mick jagger there was a time when p&g nighted the ship to be righted and you came in and the rest is history. is that fair to say? >> i think it was a team effort as you know. and i would argue it wasn't at all about personalities. you know, as -- >> put it's the personalities that institute the initiatives that either generate growth -- it was a company that had been around for so long that could have looked sort of mature, and that innovation wasn't possible anymore. i mean what can you do with tide? and now we know that like the guy that said we don't need a patent office in 1860 because everything's already been invented, everything has never

always been invented. >> now you have those pods. >> so much. >> you know what i'm talking about? >> of course i know. they're basically currency in a lot of places today. you know -- >> well, they're basically part of a strategy that identifies a group of consumers that have an unmet, often unarticulated need, and then delivers on that unmet need with a brand, a product that delivers performance, that delivers an experience, that delivers value, that leads to preferred regular usage. >> all right. so let's -- the book is about "playing to win" about leadership, isn't it? >> no, it's about strategy. >> strategy to employ for leadership, for people that are leading to employ. >> exactly. >> can it be used in just corporate, or going to be used by -- >> all businesses, all institutions, government. you know, the basic premise is managers have two jobs. they have a thinking job, called

strategy. and they have a doing job called leadership. and you know, our hypothesis is, roger's and mine, that after 75 years of experience, too many companies, too many not for profits, too many governments, don't have a strategy because the strategy is fundamentally choices to win. and they either don't know what winning is, or they aren't willing to make the choices. >> making the wrong choices. sometimes people have a strategy. they just have the wrong strategy. >> also a problem. some are flawed strategies. some are incomplete strategies. some are no strategies. >> how do you know? >> well, i think ultimately you know, based on performance and results. >> yeah, but ideally you're trying to get that right beforehand, right? >> listen, all we say in the book is, if you make the five choices, what is winning? where to play. how to win. what are my core competents to win and what systems and measures will drive wig,

your shorten your odds. >> -- version of preagreements? >> i don't know about that, it was four agreements. >> when you look at corporate america today do you see strategies that you recognize as smart ones, good ones, the kinds that you think are going to work in general? >> well, i think that i think there are some that are working and it shows up in the performance. all right? but our premise is that there are too many that aren't there, are incomplete, or not working. and if they were there, if managers were a little bit more effective, okay, if they had robust strategies, we have one point of gdp growth. you know, could we be more competitive in the global workplace? >> you know what tonight is? it's the state of the union. >> obviously. >> and you know that the consensus now is washington is broken, gridlock, doesn't work, whatever it is. okay. leadership. let's keep it bipartisan. you have the president let's just call the representative of

the other side, let's call that boehner, for whatever reason, i don't know who the de facto is, maybe he was downgraded after plan "b." but, both sides, what does the president -- i've heard people criticize the president that he doesn't get in the trenches and lead when it's most necessary. take it to the other side, too, what should boehner have done? what should the republicans have done? >> i think in both cases what we need from government is a few fairly simple fairly straightforward strategic choices. imagine if we had an energy strategy the last three or four decades. now, what would winning be for the u.s. in energy? independence? self-sufficiency? what if we drew on all of the energy sources and what if we simply had new criteria? one is effectiveness and efficiency of our energy supply. and two is environmental responsibility. you know, that would be a what is winning goal, and it would be a set of choices.

so i think our challenge in politics is because of the short-term cycle, because of the pressure to be re-elected, we have a very difficult time putting together a strategy. infrastructure. you could argue the same issue. there are a few areas where government clearly has value. and i think they would add more value if they could articulate a simple set of goals and strategies. >> is anybody doing that? >> i think they are at the local level. i mean if you look at certain municipalities, and certain mayors, i think some governors are clearly trying to do it. i mean i don't want to get in to picking, you know, this politician or that politician. that's way beyond my area of expertise. >> but you point to a simpler issue which is when you do structure at the federal level, it gets all gummed up. you devolve it to the states and local individuals have to make local choices about what their tax money is going to be spent on. >> it might have to work.

>> you get better decisions. >> there might be accountability. >> a very simple example. joe and i are cincinnati kids and ten years ago, the city stepped back and said, you would, we've created a bit of a mess in downtown. and we put together bipartisan representative group of interested parties to work on core city downtown development. and we had a very simple strategy. you know, one was totally redo the center of the city, which was fountain square and environs. >> infrastructure. >> we had an infrastructure strategy. develop the banks, which is the river front. and begin to redevelop -- >> not your banks. the banks of the river. >> i was on board. >> the banks of the river. not the other banks. to your point, at the local level, a group came together, it was clearly in all of the stakeholders -- >> and that's a lot better than going to the federal government begging for that money and then the rest of the 49 states pay

for it. >> it's all about leadership. if somebody has the courage, you know, to make a declaration about what winning might be, i think you'd be surprised at the number of americans that would stand up and stand behind it. >> so, a year ago, we'll just, you know, you did run. &g, we'd be remiss. >> three years ago. >> right. but a year ago, i looked at your successor and he was, i mean, there were -- did you make barbarians at the gate? who did you say made that up? >> eddie -- >> but he did and you got in trouble for saying it. anyway, for whatever reasons, mcdonald's was under assault, some people here, i don't know if it was on the wall of shame. >> bill ackman came in -- >> bill ackman as well came in, you still talk about p&g or you're here to talk about the book? >> i'm here to talk about the book. but listen, i think what you're seeing is a response to a little more clarity from bob and john about the strategic choices that the company made.

and if you really look at the chronology, they were articulating those choices before bill ackman got involved in the summertime. in fact, i think they were articulated at the industry conference in january and february, and you know, they're very straightforward. you know, grow from the core, and they articulate what the core is geographically from an innovation product standpoint. extend into certain emerging markets which make sense. driven by demographics and economics. and then, i think one thing they're going for is ongoing productivity, right, to generate the cash that will enable -- >> do you still own a lot of p&g stock? >> yes, i do. >> you like -- >> obviously in the short-term -- >> gillette was one of your big achievements. was that your crowning achievement? was it a great deal? did you pay too much? did it work out? and what do you think?

>> look, i am probably not going to give you the most unbiased opinion but i think it was a great strategic move in the company's been lucky enough, you know, once a decade to find an asset that they can acquire that significantly strengthens their strategic position. it put us into new categories of business. i mean, from an economic standpoint, you know, that thing paid out on synergies alone. >> we still don't have a six-blade razor, though. >> that may not be what customers want. >> when you ran p&g you were at the forefront of sourcing and distributing products globally, right? we had a little debate earlier about how important currency changes are to your thinking. did that ever factor in your thinking? thinking about what currencies were going to be in different markets for you? or did you have to figure it out? >> i'm a big believer in, do your job, okay? and i'm also a big believer in circle of concern, which is big.

versus circle of influence, and circle of control. currency, outside my circle of influence. >> how did you deal with it? >> well, you're concerned about it. obviously you hedge where you can. and when you're in 90-plus countries around the world, you know, you have a little bit of a basket balance, right? but you manage it. >> yeah. >> but it doesn't drive your strategy. it's short-term -- >> is free trade ever bad? >> i don't think in the long run. i think in the short-term, you know, there are obviously winners and losers. capitalism -- but i think in the mid and long-term free trade is good. >> but moving to a territorial system -- >> a little discussion about that earlier. >> i think so. >> what would you -- >> well, because right now, there are just distortions in the current system, because -- i mean there are obviously distortions all over the place in the current system. i like simpler. i like territorial. it puts us basically on the

same, you know, on the same standard and same basis as the rest of the nations that we compete in. >> and i'm sure p&g dealt with heavy handed regulation. >> you know, we did, but fortunately, fortunately most of the businesses that we were in were not heavily regulated. i mean we moved out of -- i mean one of the big decisions you have to make in strategy is not just what businesses you're going to be in but what businesses you're not going to be in. we moved out of all of the food and beverage businesses. >> and was the regulation part of the decision making? >> small part. >> you just implied that. >> small part because it's an issue of structureal attractiveness. there were other bigger issues, in my view, with food and beverage. they tend to be local businesses. they tend to be commodity driven. you can't do a lot of innovation with peanuts. and peanut butter, for example. but, that was clearly a factor in our exit.

we had had a couple of fairly large drug successes. >> you made a potato chip that was a model for the stealth bomber's wings, didn't you? those pringles, to this day. >> what is that called? >> -- very strong. >> and they stack very nicely. i guess, you've -- we've got to go? i think we have to go. i don't know. one more. you have one more? >> no, i was actually, well, no, i was going back to, you had said the deal, the gillette deal, sorry to go back to this. >> no, fine. >> you said you thought it paid for itsself. i was reading, there's a lot of people out there that think that deal was transaction with your -- in which the synergies didn't actually come out but there are people inside p&g that seem to argue it changed the culture, changed a lot of things for the better but in terms of the real number. >> well i think, you know, i think the numbers are the numbers, and you know, that answers whether the synergies paid for the deal. but i think the bigger issue is was it a good strategic move? and what did it do?

it positioned us in categories which became core. male grooming, female hair removal and grooming. oral care. we have the number one brush franchise in the world in oral-b. you look at the progress, so it positioned us stronger for the future. and the other thingtid is, it strengthened our strengths. right? i mean with gillette we got a company that's innovative in the businesses they compete in. we got a company that can create and build brands and a lot of really good people. >> a very close shave is that a fusion or -- >> six blade that we don't have yet. >> no, no, no, it's not. >> it's gillette mazer. >> male grooming, female hair removal. >> how often has that been said on television. and why did everybody look at me? >> that was an accident. if i can just ask if strategy is key, and the problem in washington is leadership begins with strategy, is the corollary to your theory that since

washington is a political scrum and we can't agree on strategy are we sort of relegated to being suboptimizing? >> no, because i think if you look at the history of the country, even at the federal level, you know, way come together and put together a strategy when we needed one. unfortunately, it generally, you know, it generally entails us getting into a crisis. >> all right. >> they need a crisis. >> we had a guy yesterday call all republicans haters and racists. he just called political scum. >> scrum. >> oh, scrum. >> did you say -- >> scrum. >> fine line between scum and scrum. >> either would have worked for political. a.g., thank you. can we show the book? >> show the book. >> there it is. >> "playing to win." >> which is what we do here on "squawk box." >> coming up, state of the union, coca-cola results. they take a back seat, though, to this next story. look at your screen. the "sports illustrated" swimseat issue officially unveiled. holy smokes.

kate upton gets the cover for the second year in a row but some of the suits inside the issue -- is she wearing a suit? are coming from a very unlikely place. courtney reagan has where they're coming from. first, do not miss cnbc's coverage of state of the union tonight at 9:00 eastern time. everyone's retirement dream is different; how we get there is not. we're americans. we work. we plan. ameriprise advisors can help you like they've helped millions of others. to help you retire your way, with confidence. ♪ that's what ameriprise financial does. that's what they can do with you. let's get to work. ameriprise financial. more within reach.

"squawk" checking futures. a little bit of a mixed picture. dow will open up almost two points. nasdaq off about five, and the s&p let's call it unch. one of the morning early winners we've been watching, michael coors holdings. quarterly profit of 64 cents per share compared to estimates of 41 cents. revenue was also well above estimates. mcgraw-hill, matching estimates with its per share earnings of 72 cents per share but its guidance for 2013 falls short of consensus. and of course that company trying to spin off s&p amidst all the things that are going on with s&p in that famous lawsuit now. >> was that really -- does that really drop like that last minute? >> i don't know what's going on with that. >> you see that that's showing this morning a rebound. >> that doesn't make sense.

>> unless they didn't spin anything off already did they? >> no. >> did that really drop that much on their guidance? >> let's take a look at what's happening. we'll come back after the break and take a look at that one. in the meantime, the 2013 sports illustrated swimsuit issue hits the newsstands today. but there is a twist, some of the swimsuits inside the magazine, and courtney reagan has the details. courtney? >> hi, good morning to you andrew. you know, 18 million women are actually expected to flip through the pages of the "sports illustrated" swimsuit edition, yearning to look just a little bit like kate upton. and this year target is hoping they can help make that pipe dream a bit of a reality. for the first time a target branded xileration swimsuit has been chosen for model jessica perez to wear in the iconic photo. this is the time of free marketing a retailer could only dream of. while target didn't pay to be chosen for the wardrobe it has invested in the swimsuit edition. target is the exclusive

advertiser for a minizine with six pages of si content and six pages of target advertising, a style guide, with hair and makeup tips to finalize your look. target also sponsored digital videos. target vp says that the swimsuits featured in si will be available at the end of the week and inventory is being planned as usual. but given the long period of time that target sells swimsuits if there is a big spike in demand they could have time to reorder those swimsuits. and i do want to remind our viewers that kate upton will be live on power lunch today with brian shactman. she is the cover model so make sure that you tune in, and andrew, i'm well aware that valentine's day is just a couple days away. so picked out a couple for you. we'll have to try them on. >> for my wife i'm hoping. >> oh, well -- you know. you guys can decide. >> courtney, if i'm so quiet on the set during your report, no talking. >> you could do the report again right now. >> i could probably --

>> just a loop on every half hour. >> all right, thanks courtney. still to come on "squawk," the nfib survey we're following the swimsuits with the nfib business survey. also jeb hensarling and muhtar kent. the patient, presented with a hairline fracture to the mandible and contusions to the metacarpus. what do you see? um, i see a duck. be more specific. i see the aflac duck. i see the aflac duck out of work and not making any money. i see him moving in with his parents and selling bootleg dvds out of the back of a van. dude, that's your life. remember, aflac will give him cash to help cover his rent, car payments and keep everything as normal as possible. i see lunch. [ monitor beeping ] let's move on. [ male announcer ] find out what a hospital stay could really cost you at aflac.com.

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coca-cola is reporting 45 cents a share. and that is above expectations of 44 cents. net operating revenue at coke was 11.46 billion dollars. that was up from 11.04 in the year-ago period. 11.5 is where it is. and then, north american volume up 1%. global volume grew 3%, and as it said here, it was driven by international. now, if you follow the company, you follow the company, everybody knows exactly what

unit case volume that they're looking for in all the different regions. so, if you're an analyst you would know in latin america it was up 5%. i don't know what analysts were looking for. but that is one of the illustrations of the international business that the company is talking about. >> anything on china or india? >> europe. >> europe, wow. >> down 5%. >> not surprising. >> worldwide, i think we already mentioned up about 3%. coca-cola at this point has finally broken out of that multiyear trading range. because it was a multiple of like 40 back in the late '90s. >> so the volume expectation was 3.9%. >> the what? >> the worldwide volume, the expectation was for it to grow 3.9%. and also that europe was actually going to grow 0.3%. >> and it was down 5%. so europe -- >> far more than expected. >> although the stock is okay. >> 38.90. >> can you be surprised that a weak european growth or lack of it? >> no, no. probably not.

>> we will, obviously, be asking about all this with muhtar kent, and he will join us today at 8:00 a.m. of course, chairman and ceo, so we're going to move on now. michelle, and you're the one that has to do it. >> the latest read on small business sentiment is out. how are small businesses feeling about the state of the economy? let's ask chief economist for the national federation of independent businesses. good to have you here, bill. >> hi, fishle. how you doing? >> looking at the numbers here. 88.9. still one of the lowest readings in the surveys, 40-year history. i should read this as negative, correct? >> yes, you probably should. i guess the only good news in this report is it didn't go down. so it went up a little bit from the december reading. 0.9 of a point. but this is still the average going into 2008 was 100 over the last -- the 35 years before that. and we haven't been anywhere close to that. and we've just been kind of in

this recession range now for the whole recovery, which is really not good. >> so for our viewers who maybe don't know, the small business optimism index, you survey all these businesses. are they going to create new jobs? are they going to make capital outlays? what do they think business conditions are going to be like in the next six months? wow, way down. 30% -- that means they think 30% of the businesses you surveyed think six months from now business is worse? >> yeah, that's a net 30. before we seasonally adjusted we had 12% who thought it was going to be better. business conditions could be better. and 35% said worse. and of course, 42% said it's going to stay the same. which is not good. so, seasonally adjusted 30 percentage points more thought it would be worse than thought it would be better. >> what's the problem, bill? >> well, you know, we get a lot of different answers from them. one, when we ask them if it's a good time to expand, we saw an amazingly low, only 5% say it was a good time to expand. we ask them why, 60% said well, sales are really weak.

30%, this is a new high, said political climate's terrible. so that's really keeping us from risking our money and betting on the future. we're not confident enough in the future to put money on the table. >> it's weird, bill, because we hear that businesses are really doing well and corporations are flush with cash and profit margins are at an all-time high. so it begs a question whether a lot of these guys just read the papers and decide they're going to, you know, just going to be negative and align and i think all right, so maybe they're not right. but then they do what they want to do based on how they feel. so it doesn't matter if they're wrong, if they're, you know, if they're going to act based on feeling negative, then you get the same result either way. even if they're wrong about, you know, the political backdrop, shouldn't be affecting them. it still does affect them. >> yeah, you're exactly right. and of course, we really have a bifurcated economy here. you know, to simplify it. the fortune 500 is doing really well, corporate high shares of

gdp, say half the economy is growing at 4%, the small business half is growing at 0. zero plus four divided by two is two. that's about what we're getting. these people are pessimistic but also reporting terrible sales performance and terrible profit performance. so we were publicly traded, the stock market would be really in the tank, so it's probably good that all these people own their own stock and therefore aren't in the public arena. but so it's really a very bifurcated economy here. coke makes all its money overseas but we're a very domestic, consumer spending is really lagging, and consequently we're not doing well. >> i think we'll say some of these things in our next set. bill dunkleberg. >> here we go the economy and jobs are expected to be major points in tonight's state of the union speech. valerie jarrett, white house adviser, joins us now. miss jarrett as always, great to see you. thanks for joining us. >> thank you, good morning, everyone. >> do you expect, valerie, that we will see mostly jobs, the economy, growth, as opposed,

maybe to immigration or guns, or climate change? will it be more focused on those issues than the inauguration? >> the central focus of the speech will be how we're going to build our economy from the middle class out, as opposed to the top down. the president will focus on some of the issues you were just talking about. how can we be a magnet here in the united states for jobs and manufacturing? how can we make sure that our workforce has the skills that they need in order to compete? how can we make sure that people earn as a living when they work hard, investing in education, investing in infrastructure, investing in energy. all of those are ways of making our economy stronger and that will be the central focus of the president's remarks this evening. >> we were talking about those same things earlier, and i actually, i don't know whether you have anyone monitoring the questions i'm going to ask, because i actually said what i was going to ask earlier. >> i wish i had. >> so, that makes a lot of sense. because i agree the middle class

obviously, and i think there's ways to do infrastructure in a public/private way that makes a lot of sense. education, obviously, long-term, that's one of the most important things. and even immigration to keep these talented people here. but then i said, i wonder if the president might just throw a bone to those people that you said, not from the top down but from the middle up. but, since government plays an important role, but really the private sector is really the engine of job -- >> absolutely. >> any bones, now or corporate tax reform, the president has stated that he's for that in the past, or maybe a close look at any regulation that might hurt growth or anything that actually is real pro-private sector. would we hear anything like that? >> i think the general message tonight will be just what you said, which is that the private sector is the economic engine, and what we have to do is to make sure that government does whatever is necessary to prime that pump. what do we have to do to

incentivize companies to come back to the united states and invest here? what do we do to our tax structure to make our global companies that are u.s.-based competitive and invest here in america? and hire people from america. part of the immigration reform debate that has the support of the business community is how can we keep high skill people working here? we have the best universities in the world, and when many of the folks graduate we send them back home where they start new companies and compete with the united states. that doesn't make sense. we want them right here. we want a pass to citizenship for the 11 million people who are living in this country now, bring them out of the shadows so that they can participate in our economy fully. and so i think that the messages that you'll hear this evening are ones that should give the private sector confidence that the united states still can do big things. still can create an environment where they can compete in this global marketplace. and so i think the president has spent a great deal of time listening to the business community, small business

owners, as well as large. what they want from government is certainty, predictability, stability, and we need a partner in congress in order to make that happen. we have to get our fiscal house in order in a balanced and fair way. and if we do that, what we've heard overwhelmingly is the private sector is ready to take off and grow. >> valerie, one of the things the private sector talks a lot about is tax reform, writ large. the president talked about it during the election in the fall. are we going to hear about that tonight? or are we going to hear about, you know, not only capital gains treatment, but how private equity would target interest, something that was raised on "60 minutes" is that going to come up? >> i'm not going to get out too far ahead of the president. let's let him give his speech. but i will say to you i think that the themes of tonight are ones that will resonate with the private sector, resonate with people who are making decisions right now about whether to invest in our country or not. it is designed to give them confidence, that's how we're going to build the middle class. that's how we're going to strengthen our economy.

that's how we're going to provide a pathway into the middle class for those who want to participate in our workforce and we need to do everything within our power in the government to make sure that that happens. >> valerie, this is ed jair the. how are you doing? >> i'm well. >> this distinction between private and public can often get, i think, drawn too finely. private sector companies depend on a strong infrastructure, and a highly educated workforce. >> that's right. >> are those the kind of connections the president's going to make tonight? >> yes, absolutely. as i said at the outset, we want to focus on how to create jobs, how to incentivize manufacturing, particularly to come and invest in america. but in order to do that we have to have a world-class education system. we have to make sure that when people finish school that they are equipped with the skills that they need in order to be productive in the workforce. and we need to make sure that they're paid fairly. so all of that is a part of the president's message. and you're right, infrastructure, without infrastructure, we cannot move

our goods and our services. we depend on that. our roads, our bridges, our airports, our port systems. all of that is what government does, what the private sector cannot do on its own. and so, you could look at it as a private/public partnership. it's a covenant that we have with the private sector. >> valerie, chuck gabriel. you know the last american jobs act in the last congress actually asked for $447 billion to create 1.9 million jobs. that's $235,000 per job. now, it's post-election now, so it's even clearer to everybody and the polls are showing that number one on the minds of the public really is the debt and deficit issue. and we're borrowing 40 cents on the dollar. i just wonder if you really thought hard about how much sense it makes and how discordonate it might be to throw a spending package on top of the president's speech tonight. >> i'm not talking about a big stimulus package. at the end of last year the president tried very hard to reach a grand deal that would

have gotten our fiscal house in order that included both increasing rates, as well as entitlement reform, and spending cuts. and so he's still anxious to do that. he thinks that's what we need to do. and if we do do that. if we make those tough decisions now -- >> he will bring up entitlement reform tonight? >> i'm not going to give you the details of the speech. but as he has said in the past he believes that we have to have a balanced approach in order to get our fiscal house in order. we cannot simply cut our way out of this. but we do need to take on challenges, which will ultimately strengthen those entitlement programs. and if we do that, if we get our fiscal house in order, then we'll be able to afford to invest in infrastructure and education, and science and technology, and innovation, and everything that makes the united states so unique. and so that's the approach that the president has taken, and it's what he will continue to take. >> you saw that right or wrong, maybe it was carping from the right, but for the inaugural speech that it was, you know, sort of bell coast and not

really a lot for the, i guess it's the 47%. we keep talking about the 47%. in this case, it's the 47% of the country that or 48 that didn't vote for the president, but they're still there. and there is a very sharp divide about the way people feel about how the country's doing. will there be any olive branches? will it be just as -- will there be anything for the 48% that maybe didn't vote for the president? will there be a way to sort of bring us all back together as one country? >> i actually think that the president's inaugural speech was designed to touch 100% of america. i thought it was a speech about equality and opportunity. it talked about our founding principles and values and how those principles should still guide us today. it is one that i thought resonated broadly. it was designed to do so. and the speech tonight is considered, you know, the second part of a two-part play, and he will expand upon the themes of the inaugural speech. i think as people listen around

the country, everyone should feel that the president is talking to them. because he represents the entire country, not just those who voted for him. that's been his guiding value throughout his presidency. >> well, thanks for coming on "squawk box" today. >> you're welcome. >> i know you were on earlier. do you know how many more appearances you have today? you're going to be hoarse, right? >> i intend to be very busy today. it's a big day. the president so looks forward to his opportunity to address the american people before congress, and so it's a big day for us. it's the beginning of a second term. and we're all very excited. >> are you there when the peach is being written? >> i am around all the time. i think that the president has spent a great deal of time on the speech. it's in great shape. he infshed it ahead of schedule. i think it is one that will really resonate. it's uplifting. it's optimistic. and it challenges us all to remember why we're here. >> i guess we got to go. anyway, miss jarrett, we appreciate your time. thank you. >> you're welcome. you're welcome. bye-bye. >> real quick before we go to break. check out shares of coca-cola,

which just reported earnings. we've got ceo muhtar kent coming up in an interview you can only see right here at 8:00 a.m. i know what you're thinking... transit fares! as in the 37 billion transit fares we help collect each year. no? oh, right. you're thinking of the 1.6 million daily customer care interactions xerox handles. or the 900 million health insurance claims we process. so, it's no surprise to you that companies depend on today's xerox

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president obama set to give his annual state of the union address tonight and congressman jeb hensarling, chairman of the financial services committee, joins us now. he's also here to talk about his first hearing as the chairman of the committee. that hearing is going to be centering around the federal housing administration. good morning to you. >> good morning. >> so i want to go to this. you're quoted saying, open question, whether -- and this is going to happen, i believe today, at your session. open question, whether the fha has now morphed into countryside, you call it, arguably the fha has now become the nation's largest subprime lender. should we should down the fha? >> no, we shouldn't shut down the fha. but at the same time. we shouldn't be loaning money to people to buy homes who can't afford to keep them. i mean, that's just devastating to american families, and a lot of what you see in fha today, when you look at their default rates, they're hurting many people that supposedly, purportedly they are there to help. and in addition, four years running, four years running,

they've been below their statutory minimum of capital. if this was a private insurance company, somebody would have been fired. somebody would have been fined, and the interest company probably would have been put into receivership. historically, the fha has been about helping those low income and first-time home buyers who otherwise have good credit. it's traditionally been about 10, maybe 15% of the marketplace. today, it's 56% of the marketplace. >> congressman -- >> what we're trying to do, if i could finish this one point, is have a sustainable housing finance policy in america. you can't have new capital come in, as long as you have fha, who's only requiring 3.5% down, allowing 6% buybacks, and allowing people to have these incredibly low fico scores that dangle home ownership in front of them, only to take it away. i just think it's ironic that as we condemn so many people engaged in subprime lending -- >> if we take them out of

business or we limit them, what happens to housing prices in this country right now? that's the ultimate -- >> no, it is not -- the ultimate question is how do we have a sustainable housing finance policy and sustainable in two ways? number one that avoids an incredible, dramatic boom/bust cycles that we've seen. we saw it in the '80s. we've seen it most recently and sustainable again you don't do struggling working families any good to put them in homes that they can't afford to keep. and so all we're saying is the fha ought to take its traditional role that it's had for decades which it currently doesn't have now. >> i agree with you completely. i don't know if andrew is aware in the wake of the subprime crisis "the new york times" did a series of stories looking at fha homeowners. i don't bring up my book often, but i quote a story in my book and they interview a guy in ohio who says, wow, i can't believe i got away with this. i can't believe they lent me money. and another woman i believe who

was in colorado who put every dime she had into another house and she said this is what the government should be doing. they should be giving somebody like me another chance. >> i think it's perfectly fair to criticize the fha for some of the loans they made during a period when they were very much carving out a bottom on the housing market. so that's the thing. that's the thing. where do they go from here? and i agree with andrew, congressman, it is widely held that the fha prevented housing prices from falling another 25%. now i'm not sure where you're planning to go with them now. right now, their default rates are very low. so i would hope that you would try to preserve their role in the housing market as it was before the crisis. >> well, actually -- well, number one, nobody's proposing that the fha be eliminated. what we're proposing is that the, you know, five years after the crisis, five years after the crisis, that they assume their traditional role within the marketplace. again, you're not going to have a sustainable competitive

innovative marketplace as long as they're taking -- >> are they -- are they crowding out the private sector or by the way is there no -- >> yes, yes. how can they fill a void when you have, again, the taxpayers that are sitting behind? you can't compete with uncle sam and somebody who ultimately has a printing press. >> the -- it's just not back in the game yet. >> mr. chairman, you're arguing about curbing fha and even the obama administration wants to reduce the footprint for fha and fannie and freddie. >> when are they going to do it? they've had four years. >> that's a debate. but my question is about tonight. the president tonight is going to mention housing, and you know try to make a pitch for additional assistance, mortgage refi type assistance for borrowers, and this time he wants to go further than in the past with the harp refis as we call them by trying to recite a new refinance opportunity for borrowers whose loans aren't backed by fannie and freddie. last year they proposed via fha,

this year via fannie and freddie? is that a nonstarter in the house? >> the president has had so many failed policies, but particularly his housing policies are ones that helped lead the list. i mean instead what we see i many respects is that the taxpayers continue to shell out more money and we continue to have these incredibly high default rates where people default not once and twice and three times, and ultimately, ultimately we have to have a sustainable policy. >> chairman the music is playing. they're playing us out. we appreciate your time. good luck at the hearing today, and we look forward to your thoughts maybe in the next day or two on the state of the union. >> absolutely. >> ceo of coca-cola coming up at the top of the hour. don't move.

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i've had so much fun today with tony fratto, jared bernstein and chuck gabriel who have been guest hosts with us. thank you, gentlemen. coming up don't move, coca-cola reporting just minutes ago. here's what the stock is doing at the top of the hour. our exclusive interview with ceo muhtar kent. plus, investment ideas from a "squawk" market master. there he is coming out of the shadows. >> in silhouette. that was cool. >> when "squawk box" returns. what do you see? um, i see a duck. be more specific. i see the aflac duck. i see the aflac duck out of work and not making any money. i see him moving in with his parents and selling bootleg dvds out of the back of a van. dude, that's your life. remember, aflac will give him cash to help cover his rent, car payments and keep everything as normal as possible.

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coca-cola reporting results. reporting 45 cents a share, nongap, and that is above expectations. this is our exclusive interview with chairman and ceo muhtar kent is just minutes away. >> investment ideas from a "squawk" market master. mario gabelli in the hot seat for the next hour. >> and before the president takes the stage tonight we'll tell you what to expect with house minority whip steny hower and deloitte and touch.

the third hour of "squawk box" starts right now. >> welcome back to "squawk box" here on cnbc. first in business worldwide. i'm joe kernen along with andrew ross sorkin and michelle caruso cabrera. becky quick is off today. joining us on set for the next hour, "squawk" market master mario gabelli. we need a new picture, mario. maybe we can bring that up. want to show you the picture we were showing of you. looked like you just ate something like a bad oyster. chairman, ceo, and chief investment officer of gamco investors. that was not intentional. . that was kind of the look. mario is going to give us some investment ideas in a couple of minutes. we're going to talk to coca-cola chairman and ceo -- that's a great picture. muhtar kent. plus irving piccard and his attorney the men tasked with

tracking down the money from bernie madoff's ponzi scheme. good luck. first michelle -- oh, okay. so you went over -- i thought you were -- >> i'm in the newsroom. >> okay. >> this is part of the art fis of television. we move around. get the shots. among the stories that we're following north korea drawing a threat of new sanctions after conducting a third nuclear test overnight. president obama calls the test, quote, a highly provocative act. ed u.n. security council will meet today to discuss possible responses. north korean state-run media suggested the test was aimed at coping with what it called, quote, out rageous u.s. hostility. equity markets in japan and south korea reopened today. a disabled corn val cruise ship is now headed for mobile, alabama, with the help of a tugboat. the ship is view to arrive there on thursday. it had been scheduled to return to galveston, texas, yesterday but the trip was disrupted by an engine room fire which knocked out the propulsion system. a judge approving apple's

request to speed up the schedule in a lawsuit filed by david einhorn's green light capital. he sued the tech giant to stop the phonemaker from eliminating from its charter the ability to issue preferred stock without shareholder approval. apple wanted the issue moved up arguing it would have a big impact on the upshopping shareholder meeting on february 27th. here's what the futures are doing. dow jones would open lower by four, nasdaq lower by five. a little bit more weakness in the wake of coca-cola's results. here's what europe is doing. france higher by 12 points, the ftse higher by 24, germany up by a point. >> dow component coke hola reporting earnings of 45 cents per share. that's ex-items. now here's the good news. that beat wall street's estimates by a penny. however revenue came in slightly lower than analysts expected. joining us now in a cnbc exclusive coca-cola chairman and ceo muhtar kent. mr. kent, thank you for joining us this morning. >> thank you for having me, andrew. >> let's go straight to what i think is going to be the issue

this morning, which is case volumes. across the board they seem to come in lighter than some people were expecting. some of the big, i don't want to say misses, but thises nonetheless. bottling came in at 5%. expectation was closer to 10%. europe the expectation was marginally positive. europe was down 5%. what's going on? >> first i'm actually very pleased with our results, andrew. pleased for the results of the quarter, where we grew revenue comparable currency neutral revenue by 5%, and grew our earnings by 15%. and grew our cash by 12%. we are in line. those are numbers that are in line with our long-term growth targets and we grew for the year, again, currency neutral comparable revenue at 6%. and in a world where you have this kind of volatility, to be able to deliver results of growth in earnings, growth in revenue at 6%, growth in cash

and growth in market share, record market share, and record volumes, i think we're pleased. this is the third year in a row where we have actually met or exceeded our long-term growth targets. and in a world where the macro conditions are challenging, to say the least, we believe that working hand in hand with our 275 committed bottling partners all around the world and investing for growth we will continue, i believe, as we move in to 2013 and beyond to meet and exceed our long-term growth targets. >> having said all of that, and clearly the market, by the way, the stock is pretty much where it started, it's off marginally, but not much at all, what is the case volume issue though? >> there isn't a case volume issue. we grew case volume for the year at 4%. long-term targets that we have established are 3% to 4% case volume. and we grew 3% for the quarter,

and 4% for the full year. that is on top of again meeting and exceeding long-term growth case volume targets for 2011 and 2010 which were the three years of our long-term vision. >> obviously the analysts then got it wrong. because if the numbers are coming in as you expected, where did they get it wrong? did you end up not selling as much as they expected. did you lose market share? is it a weak consumer? >> i don't actually know where -- what the analysts numbers were. all i can say is that we have put out some clear targets for our long-term growth model. case volume at 3% to 4%. revenues at 5% to 6%, and operating income at mid single digits -- high single digits at 6% to 8% and we met and exceeded those targets three years in a row, including this past

quarter. >> tell us a little bit about the state of the consumer. both in developing countries and emerging markets right now, muhtar. >> i think there's still apprehension out there. certainly in europe, certainly in the transition going on in china, where, i think what we see is the gdp, and actually disposable incomes, have shown a divergence, but we do see that that's healthy for the long-term chinese economy, moving from a purely export-led industry and economy to one that is mixed more with consumer and exports. consumer spending and exports. that's healthy for the long-term. but there's some challenges during the transition which we have experienced, especially in the second half of last year. but we feel that long-term china is an incredible opportunity, continuing to be an incredible opportunity. in the last -- >> china specifically or you have eurasia africa all grouped

together? >> china is part of our pacific group and was down 4% for the quarter. but it was up 4% for the year. in the last 36 quarters in china, we have grown 34 of those 36 quarters. and actually double digit growth in 29 of the last 36 quarters. we see china as a long-term, very dine amic growth market and we have a great portfolio, great ness bottling partners, local bottling partners in china that we are working hand in hand with to invest and realize continued growth. >> muhtar, george soros talks about a currency war going on. i was curious what the forex impax has been and what you expect it to be if you think currency wars are upon us? >> 2012 currency was a headwind. by the way, i may add also 2012, commodities were -- was also a headwind for us, so despite those two headwinds, again, we've been able to come out meeting and exceeding our long-term growth targets.

as far as 2013 is concerned, we feel that commodities are going to be more benign and probably even for the year for us. >> muhtar, over the next five years, based on back of the envelope numbers, you've got to generate about even about 90 billion dollars, cap-ex about 15 billion to 20 billion. what are you going to do with allocation of that capital? and what is going to be in the product portfolio that's not there now? you've done a terrific job, what do we see over the next five years in your vision? >> well, we firstly will continue firstly to invest for growth. that is the absolute number one priority for us. of course, certainly in terms of we'll continue to paying dividends, and we will also certainly look at share buybacks, we've announced certain parameters along those lines. so, i think, you know, you won't see a major shift in uses of our funds.

and also, certainly we will continue to innovate on our product portfolio, innovate in our supply chain, innovate in our route to markets together with our bottling parter ins. we've introduced more than 800 different products all across the world in the last three, four years and we will continue. we have now a choice of 500 brands, in 3,000 products across 207 countries around the world. >> look forward to your yogurt strategy. >> muhtar, it's joe. the -- the sugar debate is in full swing, and if i were you, if i were coke i'm not sure if you don't address it in a vacuum things just get worse and i grew up drinking regular coke, and i was never fat, although people write in and say i'm fat now, although i was never fat. but the linkage is already starting to be made. do you have a strategy, eventually do you see the slow

decline in sugary drinks replaced by, you know, artificial sweeteners? do you address it? do you not address it because the food police are coming, muhtar. they're here. >> joe, first we are addressing it, and say openly and very clearly there's an important conversation going on about obesity here in this country as well as across the world. we want to be part of that. we have decided and want to be very much a part of that conversation. we are committed to being part of a solution, absolutely part of a solution. here's -- and i'm personally very committed to this, together with every -- all the employees of the coca-cola system, and our bottling partners, to be part of the solution. we're committed to using evidence-based science to foster choice. we're committed to continuing to innovate all kinds of beverages. those with calories, those with

low calories and those with low calories. we're committed to responsible marketing, we're committed to transparency and nutritional information, and we're committed to raising the awareness for active healthy. the need for active, healthy living or moving. >> and you know, i guess you're going back at myanmar. i pointed out, i can get a 32-ounce big gulp in myanmar, the most repressive society on earth. unable for me to get a 32-ounce big gulp in new york city. have you thought about that? >> well, let me just say this, our concerns about mayor bloomburg's plan are -- i have tremendous respect for mayor bloomberg. all i can tell you -- all i can tell you is the following. all i can tell you is the following. >> he tied sandy to global warming. >> it is critically important not to -- the solution here is not to blame one product or one

category. the solution here is for business like us to work hand in hand with government, with civil society, to provide the right kind of solutions for this very complicated societal issue called obesity. that is the solution. >> muhtar, before you go, the state of the union is coming tonight. as the ceo who runses a big, multinational company, is there one thing that you could hear tonight, it would be what? >> the one thing that i would like to hear tonight is, again, commitment to solving some of the really, really challenging priorities ahead of us, fiscal reform, tax reform. immigration reform. and also commitment to really start working together in washington, d.c. to provide the solutions. because if we can't provide the solutions for these three major issues, i think that we will really see a pop here in the united states. everyone is just waiting for

those solutions, and we're ready to really start coming out of this malaise that we're in right now. >> it could be worse, muhtar. you could be selling sugary drinks and doritos. think about -- >> you know what is most ridiculous? when taylor swift got criticized for endorsing diet coke. the obesity freaks went out -- it's diet! what on earth? >> i admit now, i won't waste the calories on -- >> regular coke. >> i would if i could. but i love it. because i would never -- >> i think the important thing is, there's a place for coca-cola, in an active, healthy diet. there's a place for diet coca-cola, and there's a place for an orange juice. and there's a place for water. i think the important thing is, we have -- we are here to become part of the solution, to raise awareness for the importance of calorie balance and the importance of active healthy living. that is important. >> diet coke doesn't work. you need the regular coke.

>> that's true. >> you got to keep it in the house. >> muhtar we got to leave it there. you should also know i drink a diet coke before the show every morning at about 5:00 a.m. >> that's great. thank you. >> you have the bottle there. nice. >> little product placement. very nice. okay we'll see you soon muhtar. >> you are just one khaki guy. you drink a diet coke? you're crazy. you don't know what you're going to do at any time. i find this stuff out about you. >> is this just sarcasm? >> you're crazy. you're nuts. you're liable to do anything at any time. an exclusive interview with irving piccard and his attorney david sheehan. the men who have spent the last four years tracking down the proceeds of bernie madoff's ponzi scheme. plus expectations for state of the union from steny hoyer and the ceo of deloitte. coming up. how? by building custom security solutions that integrate video, access control, fire and intrusion protection.

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welcome back to "squawk box." tesla ceo elon musk calling a "new york times" article -- stop, i'm not laughing about this story. elon musk, calling a "new york times" article about a tesla test drive quote a fake. and he made his case right here on cnbc. phil lebeau joins us now with more. >> this was quite the little back and forth between elon

musk, tesla and "the new york times" yesterday here on cnbc. let's set the stage about what this all involves. on sunday "new york times" reporter john broder did an article, a test drive in a tesla. well, as part of the test drive, seeing how far the range is of that vehicle between washington and new york the vehicle stalled. it lost power completely. had to be towed. "the new york times" says the model range in cold weather fell well short of expectations. elon musk says the reporter john broder, he didn't follow instructions. >> we explicitly said that to do this trip he needs to make sure he's fully charged when he starts out. that he doesn't take detours. and that he drives at a reasonable speed. i'm not talking about, you know, some ridiculously low speed. i'm talking about, you know, at least not too far above the speed limit. and numbers three things were done. just like if you had a gasoline car. if you only filled the tank up partway and instead of driving

to your destination you meandered through downtown manhattan and through all the traffic, and everything, and then raced to where you were originally supposed to go and you ran out of gas, people would just think you're a fool. >> well, "the new york times", they don't see things the same way as mr. musk. telling us that the february 10th article recounting a reporters's test drive in a tesla model s was completely factual describing the trip in detail exactly as it occurred. any suggestion that the account was, quote, fake, is, of course, flatly untrue. our reporter followed the instructions he was given in multiple conversations with tesla personnel. he described the entire drive in the story. there was no unreported detour. and he was never told to plug the car in overnight in cold weather, despite repeated contact with tesla. this is an interesting story coming just a week before tesla is reporting its fourth quarter and full-year earnings. and this stock right now trading at just under 38.50, is close to an all-time high, guys.

in fact it hit an all-time high of $40 a share on friday before pulling back. remember, the model s is critical. they've got to build 20,000 of these this year. they say they're on target for this and that's why people are watching to see what kind of reviews the model-s gets and what kind of reception it gets from the broader market. tesla earnings coming next week. guys, back to you. >> still one of the questions, can they sell them in >> that's right. >> okay, phil, thank you. and you just heard from him, i believe -- we call him dr. love, it's been a long time. >> valentine's day on thursday. >> it is. because he likes companies to get together. >> to get together. >> that's basically it. >> and make baby companies? >> well, spin offs are important. a terrific way to klee eight value for the shareholders. and then financial engineering all of which is a sub seth. on the other side of the coin you have companies that want to grow and do transactions to grow and you're going to see a lot more of that. dell being an examplef that. and apple being an example of

that. >> if you were a shareholder, maybe you are, would you be suing right now? >> look, we did cable vision, and we voted against the deal. we were one of several that had a significant impact. the stock then went from 36 to 9. it was painful. but we bought more. and as a result of the spinoffs of madison square garden and amcx the values are higher today and with cable vision itself being lower -- >> you happy about that decision? because it took a long stock -- >> that's andrew's point about dell. >> rated five stars. our average turnover is 8% which means we hold stocks for four years. we are not day traders. we're buying businesses. we like the allocation of capital. we like to look at things -- >> so money -- was it worth waiting all this time? >> value of money what 1% or 10%? you know -- >> you could have put your money into dell and lost it. of course you know the answer is i have what i have, which is madison square garden was spun off at 18, it's 54.

amcx was spun off at 28.30. >> if you were a dell shareholder today would you be voting against this deal? >> i basically always view insider transactions where an individual knows more than i do about a company. one of the reasons we voted against the cable vision we wanted a little bit different approach with regards to callbacks and so on. i don't have an ax to grind in dell. i think we bought in our accounts at 13.35 when the deal was announced. i think southeastern asset management has a point of view. i think the structure of cash and cash no different than any r deal just bigger than most. it's not a complicated deal. would i vote against it? if the markets are down 1,000 points, even southeastern -- 10,000 on the dow, they may take the cash and run. you know, there's a lot of dynamics at play and got a long time to worry about this one. >> okay. >> apple, you know, i think is an extraordinarily attractive tax deal for shareholders. because the preferred you get is

taxable income i'm told it can be treated as dividend. >> the david einhorn deal idea? >> it's a very creative idea. >> we'll talk more about that. >> always. >> and i'll give you some ideas. >> don't go anywhere. dr. love is going to give us stocks. meantime democrats' expectations for president obama's big speech, house minority whip steny hoyer is going to join us in just a few minutes. tomorrow on "squawk" our guest host the always outspoken sam zell. we'll ask him about real estate investing and tonight's state of the union. you do not want to miss that at all. >> we've got a delay for that. >> loves andrew.

coming up we're going to get you ready for tonight's state of the union. congressman steny hoyer will join us to talk about what democratic leadership expects to hear in the president's speech. and tracing madoff's money. an exclusive interview with bankruptcy trustee irving piccard and his attorney on their effort to pay back madoff's investors. stick around. [ male announcer] surprise -- you're having triplets.

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welcome back to "squawk box" this morning. two companies that may be top of mind ahead of valentine's day seeing their stocks jump this morning. the first, michael kors earning 64 cents per share for its third quarter. that compares to estimates of 41 cents. revenues were also above consensus as some same-store sales surged. and fossil earned $2.27 per

share for the fourth quarter. revenues were well above consensus. sales growth particularly strong in north america and asia. >> we have to have some of the people that write here. they have to come out and be anchor. some same-store sales surged. they wrote for you. same same-store sales surged. >> it is what it is. >> no, no, no. there's got to be -- >> no, that's a little ration -- you steny is here. president obama set to address the nation tonight in his annual state of the union. steny hoyer joins us with more on what we can expect to hear from the president. i call you leader but i end up calling you steny. but i'm going to start with steny. because -- >> people have called me steny a lot longer than anything else. >> than leader. i know. and we can always talk -- i feel likego b to where, you know, politicians on both sides of the aisle used to have drinks together. so i'm going to tell you, this is one of your points. expect the president to focus on the theme of restoring economic

prosperity to the middle class. here's what i would ask you if we were at a bar right now, steny, i'd say we all want to do that. and we all understand that the president had some initiatives that the government can be at the forefront of to try to help do that, whether it's trick your or education. but couldn't -- isn't it time for the president to offer an olive branch or to throw a bone to corporations, and to the private sector, and maybe to, you know, we say we're not going to do it from the top down. but we know where jobs come from. we know where prosperity and gdp growth come from and we know the rap that he got the first four years about being anti-business kind of. isn't that the night to come together and take in the other 47% and do some really business friendly and private sector initiatives? >> i hope he takes in the 100%. and i certainly think that we need to encourage business growth in our country, manufacturing in our country. we have an agenda called make it

in america, as you probably know. i hope the president, and i believe the president will be talking about growing manufacturing jobs, growing our economy, growing jobs, generally that's obviously what we need to do in this country. and for our people. and i think he's going to focus on tat. it's not a question of throwing a bone. what it is is a question of creating an environment in which business, small, medium and large, feels that there's an opportunity for success growth and profits, and if they don't have that, obviously they're not going to create the kinds of jobs we -- >> you see these guys -- >> joe, let me just. creating confidence, i think is critical. this has been the most confidence deflating congress in which i've served. i'm speaking the last congress but this congress continues the pace. we've got to ensure people that, in fact, there's going to be a stable environment fiscally and from an economic policy standpoint in which they feel

confident that they can expand. if they don't have confidence, they're not going to do that. >> we have valerie on. jalry jarrett -- i call everybody by their first name, we had valerie on, steny and we're all sort of -- >> i call you joe, so that's okay. >> well you're allowed. i'm nobody. but anyway, leader hoyer, and i mentioned the speech at the inauguration, and i actually paraphrased it by saying, maybe it's just the right, or the private sector carping, but they called it divisive and sort of assertive, and you know, not any attacking to the center that people were hoping for. and she disagreed totally with that. that it was inclusive. but -- you know what i'm saying. >> yeah. >> i mean there are people, and the ceos, some of them, not all of them, but some of them do say with the heavy handed regulation that they see, and corporate tax reform is something a lot of people would like, bringing back -- repatriating some of

that money. is any of that going to be part of this tonight? he's got re-elected. he can make his base a little bit unhappy. can't he do that now and go after the 47% that didn't vote for him? >> joe let me tell you something. you know this to be the case. people who talk about this. he did, in fact, make his base a little bit unhappy during the course of the last four years of his presidency. he did reach out and try to compromise. he did reach out and try to make an agreement so that we could get a big, bold, balanced fiscal package. the president has done that. >> but did he get burned? >> in my view, and i've been in congress, joe, as you know for 32 years. other than 1995, which was a very confrontational year, the last congress was the most confrontational, least likely to compromise, at least in the house of representatives, under the republican leadership, that i've served in. so i think it's an unfair criticism to say the president hasn't reached out. he has. does he need to continue to do that? he does.

do we need to come together republicans and democrats, and give our country confidence, give the business community, as you point out, the confidence that they can expand with reasonable regulation a tax structure that's competitive with the rest of the world, which, by the way, as you will remember, he mentioned it in the last state of the union. so he gets that. i've discussed it with him personally. we need to create an environment in which business can expand. we can create jobs and we can be competitive globally. and, in fact, frankly, we're growing our economy. now last month, or last quarter, as you know, gdp went down for the first time in a very long time. why? because of instability in dealing with our fiscal challenges. and we have to get over that. the president's going to talk about that and talk about job growth, as it relates to his inaugural address my view is this is a person very, very hotly contested election, received only the second president or the first president -- the first president

since lyndon johnson, actually franklin roosevelt, to get a majority of the votes in two elections running. no democratic president before him has done that since roosevelt. so majority of the people that voted for house members voted for democrats. although we didn't take back the house. we expanded our majority in the that. that doesn't mean that we just ought to do it our way. the republicans control the house. we need to have a compromise on moving forward, particularly on the fiscal deal. >> okay. >> and i would hope we could do that. >> michelle -- you don't want to ask a question. >> no. >> go ahead, michelle. >> she's not at the bar with us, steny. >> i've heard the democrats today tell me how much the president reached out to me during that last speech, and i -- >> -- michelle. let me tell you, i sat in meetings with the president sitting, with the republican leadership in the senate and the house and trying to get to a compromise.

we didn't get there. but he spent a lot of time and effort in doing so, and any fair analysis would indicate that he was prepared to go to places, particularly on entitlements that upset his base. >> does the country have a spending problem? >> does the country have a spending problem? >> yeah. >> the country has a paying for problem. we haven't paid for what we bought. we haven't paid for our tax cuts. we haven't paid for the war. >> are we promising too much? >> absolutely. >> okay. >> if we don't pay we shouldn't buy. >> so how is that different than a spending problem? >> well, we spent a lot of money when george bush was president of the united states in the house and senate -- >> okay so that's eight years and now another eight years with a lot of spending. now we're going on 16 years of a lot of spending now. >> we need to stop it. we did stop it in 1993 and we had a pay as you go, which was a bipartisan george bush the first, newt gingrich and bill clinton adopted, and then it was dropped. as you know, in 2001. and we didn't have a pay as you

go policy, and what happened? we blew a hole in the deficit, added $5 trillion to the deficit. and we took a surplus into deep debt. we got to stop that you're absolutely right. >> doubling down. >> yes. >> i saw glimmers of hope with the terrapins. i don't know. >> there are glimmers of hope and they did pretty well from time to time. saturday, as you saw, joe, was not a good game for us. we didn't play our a game. but when we play our "a" game we got a lot of freshmen, sophomore -- dominant center right now. but he's going to be. and we're going to have a very, very good team as time goes by. but they had a bad game on saturday but they had a good game away at virginia tech before that. so, i'm very hopeful that they're going to do well coming forward, and next year. >> any progress on -- do i need to raise some money for the steny hoyer statute? the boomer esiason statue at -- on the campus. and i said where is this steny

hoyer statue? and people looked at me like, i don't know. i'm working on that. you want me to -- >> you're chairman, joe. i thought i appointed you chairman of that -- >> all right. >> let me spearhead that effort. you know what? maybe in the next -- we'll put a -- >> the next -- >> michelle remember if we do the statute we're going to pay for it. >> okay. got it. >> in advance. >> in advance. congressman leader hoyer thank you. we appreciate it. >> thanks a lot. >> you are a genius. see and this is because you're a guy. you can -- talk about sports. it's brilliant. i can't do it. i don't even know what the heck. you were talking about a team, right? >> you solely focus on business news. the terps are here. >> what's a terp? >> listen, i thought you were talking about t.a.r.p. >> it's actually a turtle. >> you have to read chapter one, table one. one page. >> grateful dead? >> talk about the dead, too.

>> this is the box score. >> we're going to talk box scores. coming up we're going to get you ready for tonight's state of the union. the ceo of deloitte is going to join us to break down the politics and policy of the president's big speech. first our own scott cohn joins us with a rare television interview. >> he doesn't talk very often. the madoff trustee irving piccard and his counsel david sheehan with a new payout for madoff investors, and some new theories about where the rest of the money is. we'll have that coming up. ress l about options trading. we create easy-to-use, powerful trading tools for all. look at these streaming charts! they're totally customizable and they let you visualize what might happen next. that's genius! we knew you needed a platform that could really help you elevate your trading. so we built it. chances of making this? it's a lot easier to find out if a trade is potentially profitable. just use our trade & probability calculator and there it is. for all the reasons you trade options -

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welcome back to "squawk box." pay day for victims of bernie madoff's ponzi scheme. cnbc has learned thats trustee who's been rounding up madoff's money would like to give more of it back even as new details about the fraud emerge. senior correspondent scott cohn is here with a cnbc exclusive. >> andrew, this was unthinkable not long ago but trust ooh irving piccard and his team have recovered some $9 billion which is more than half the $17 billion in principal that madoff victims lost. about half of that is tied up in litigation and reserve but cnbc has learned that david piccard and his counsel are about to give back a total of about $5 billion returned to investors. we sat down with piccard and sheehan exclusively, they told me they have a different view of the fraud now than they did four years ago. >> i think we have a handle on where the money flowed.

but there are a lot of areas that we are still finding. and every day brings something new. >> the case broke and everyone saw it as an affinity fraud. but what we found is that what he really became was part of the financial fabric of the international financial markets. >> in fact, piccard and sheehan no longer view madoff as a fraudster unmasked by the 2008 financial crisis. they say big banks used madoff the same way madoff used his investors. >> and that's the common thread in all of this, isn't it? that it's just a churning machine. everything that he did, it seems, was just to move money in, move money out and keep it going. >> and remember, he was just moving other people's money. and in effect, when he was paying it out here, he was stealing it. >> picard and sheehan have sued jpmorgan chase, madoff's primary banker, the bank that supposedly settled madoff's trades for nearly $20 billion. and what they had was an insight

into the activities of mr. madoff on a daily basis. hundreds of millions of dollars going back and forth in a way that would have suggested that something was occurring that was not trading in the traditional sense of the term. and that they had an obligation to look into that under the banking laws. >> a federal judge has thrown out much of the case, and a separate case against hsbc. the bank's insist they were unaware of madoff's fraud. but picard and sheehan are appealing and believe they'll prevail. they say the banks are where the real money is. not in some secret madoff family account. >> there was a lot of speculation at the outset about whether madoff had hidden some money somewhere. do you think he has money hidden away or did he, in fact, turn over what he had? >> my sense of it is that we found everything that there is to be had from mr. madoff and his family. >> one family member did not survive. bernie madoff's son mark committed suicide in december 2010. the two-year anniversary of his father's arrest. and just days after picard sued

mark madoff's children. irving picard has never talked about that publicly before. he did to us. we'll have that later today. >> so just give us a hint. did he think the kids knew? >> he still thinks that the kids knew or should have known. that's -- >> should have known -- >> that's a big difference. >> that is a big difference. and the thrust of a lot of what they've done here, including with the banks, is if they didn't know, they should have known. >> can we bring up the first full screen we talked about, there was $17 billion that was lost. >> right. >> of course mentally people thought they had $50 billion collectively. do we have that full screen? and how much has been returned in total? >> total now about $5 billion. which includes some money, about $800 million -- >> but $9 billion has been recovered. where does the other four go? >> some of the money is tied up in litigation. some of it they have to keep in reserves just in case, in escrow, whatever. the thing that's pushing them to this new distribution that they're going to ask the court for this week is they had a

settlement about a year and a half ago with the tremont fund, for $1 billion but they had to keep that money in escrow for a period of time. and that's why a lot of this money gets sort of held up -- >> and walter noel, whatever happened -- >> good question. >> you talking to madoff? >> we've been in contact. and some of it we've reported. the part that's been on the record. he has lots of things to say about how the markets are working -- >> going to get an interview? >> i sure hope so. >> legal fees incrementally from here? >> incrementally from -- >> i'll tell you up to $700 million so far. >> what about the next -- >> we've got to go. >> there's a lot of billable hours and there are several -- there are -- >> there will be more. >> breaks -- >> virtue -- >> thank you, scott. >> coming up, expectations for the state of the union. we're going to talk to ceo of deloitte advising the administration on deficit reduction. transit fares!

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the president set to address the nation tonight. for more on wall street's expectations, we're joined by joe, ceo and participates on conference calls with the administration and attended the summit last week with the president.

>> she said it perfectly. >> that never happens. >> that was flawless. >> okay. >> you advise the president op reducing the deficit? is he going to bring that up tonight is this. >> i think he's going to bring up the fiscal issues tonight. >> does he care about the deficit? >> absolutely. >> does he think this country has a spending problem? i think he believes we have a budget problem. there's two sides. because there's revenue and spending. they think it's on both sides. i think delta is not as big as people think, 10% maybe, between what the two sides believe is the solution. >> what do you tell him? >> what do we tell him? first of all, it's a collective "we." it's how we're going to move on with the big issues of the day, how are we going to move on and get past the fiscal issues, are we going to chip away at it, tax

reform -- >> is he going to plengs that tonight? >> i suspect. >> what does that mean to him? >> based on the conversations that we've had, the white house understands the notion of territorial tax issues. and the fact that while the effective rates for corporate america are about the same around the world, it takes a lot of effort to get down to that effective rate. >> in the u.s., we have an effective rate for a lot of company, it's zero sometimes. some people are really good at getting favors -- >> the financial crisis caused the tax loss carry-forwards. >> true, true, but i'm talking about getting -- >> the average effective rate is comparable around the world. but it takes a lot of effort to get to that rate. you think about the tax law, it's been around since 1986 before the internet. >> if i said to you, i don't

think corporations should pay any taxes. but you would be on the side of business, right? >> we wouldn't be out of business. we would come out of some value proposition to make. >> 25%, 28% of favor american companies that manufacture in the u.s. and export. that is a major plus in creating jobs. the goal is to create jobs. >> that's what i don't think we're hearing today. >> you will. >> we will? >> i don't think so. >> he's the guy on the phone -- >> i'm leading him into it. i'm following your lead. >> i think you'll hear a broader scale. you won't hear the detailed solutions, because that's not something that will get done in three weeks. but i think you'll hear about comprehensive tax reform that are measures that businesses are asking for. >> i don't need to ask you, but i asked valerie and steny, everybody wants a strength in the middle class, we know that, but there's different ways of trying to approach that. this administration figures we have to come up with government

plans to do this, while the private sector, some people think it's strong, but obviously 8% unemployment and sub 2% is not strong. both democrats and republicans want growth. i would start talking about growth. every regulation would be based on how it affects growth. everything i did with taxes, with spending, with deficit, with entitlements, it would be getting back the 3% or 4%. because it closes the gap on everything. >> absolutely. so if you think about what ceos want, and we have one sitting next to us, they want to growth and to be competitive around the world. >> and listens to them. >> absolutely. if you add up the words, i don't know what the word count will be, in terms of the conversation, but when we speak with the president, he's very conscious of what the business environment is. >> that would be great for him and his legacy. >> most of the immigration issues are going to be around

growth, as opposed the just the social issue. i'm confident growth will be part of the conversation. >> there you go. coming up, our guest host has a list of stocks he thinks are going to double. you don't want to miss this, right after the break. this is for real this time. step seven point two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it. siemens. answers. this is america.

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